14
Severity Adjustment in the Current Payment System Paired DRGs with and without complications and comorbidities (335 base/538 total) New DRGs added over time to capture greater complexity (e.g. bilateral hip replacement)

17
CS-DRGs: Last Year’s FY 2007 Proposed Rule Starts with APR-DRGs Adapts to suit Medicare population Consolidates APR-DRGs by having 3 severity of illness subclasses off a base DRG and a single subclass off each major diagnostic category More aggressive consolidation where volumes are low Results in 861 CS-DRGs

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CS-DRGs: Issues Identified in Comments Uses proprietary grouper –Logic is not transparent –Logic is proprietary Does not build on current DRGs –Does not recognize recent refinements of DRGs to capture complexity

19
MS-DRGs: This Year’s FY 2008 Proposed Rule Rooted in current DRG system Up to three tiers of payments –A major complication or comorbidity –A complication or comorbidity –No complication or comorbidity 745 MS-DRGs

22
Distribution of Cases by Severity Level Current vs. MS-DRGs Not in a DRG w/CC In a DRG w/CC Not in a DRG w/CC or MCC MS-DRG w/CC MS- DRG w/MCC Source: Moran Company

23
Fixes Several Problems Identified with Last Year’s Proposal Builds on current DRG system rather than APR-DRGs –Easier to understand; transparent –Benefits from past refinements to DRGs lost in CS-DRG system –Captures complexity as well as severity Logic of MS-DRG grouper will be open to all

25
Impact of Severity Adjustment Total dollars stay the same — money just shifts How an individual hospital does depends on its patients’ characteristics A hospital with the national average mix of severity levels would see no change in payment

26
Impact of Severity Adjustment Reductions for less severe cases Increases for more severe cases On average, payments: –Decrease for small and rural hospitals –Increase for large, urban and teaching hospitals Specific severity adjustment systems differ in the level of dollars redistributed

28
Percent of U.S. Hospitals by Range in Gain or Loss Lose 10% or More Gain 5-9.9% Roughly the Same 27% Hospitals with Gains 22% Hospitals With Losses 51% Change to MS-DRGs Only Lose 5-9.9% Lose 1-4.9% Gain or Lose Less than 1% Gain 1-4.9%

29
Percent of Washington State Hospitals by Range in Gain or Loss Roughly the Same 35% Hospitals With Gains 8% Hospitals With Losses 57% Change to MS-DRGs Only Lose 5-9.9% Lose 1-4.9% Gain or Lose Less than 1% Gain 5-9.9% Gain 1-4.9%

31
As Good as It’s Going to Get? CMS likely to implement a severity- adjusted system MS-DRGs fix several issues identified with last year’s CS-DRGs Additional refinement poses risks –Greater levels of redistribution –More complexity Arguments against “behavioral offset” stronger with this system

33
AHA Position AHA strongly against “behavioral offset” –A cut of $24 billion over 5 years Advocacy steps to date: –Impact data sent to all members –HALO letter to CMS opposing cut –“Dear Colleague” letter circulating Workgroup of state association executives to look at MS-DRGs

35
Hospital Specific Impact Analysis An impact analysis was e-mailed to CFOs on April 26, 2007 New impact forthcoming Includes all changes, including MS- DRGs Contact Will at willc@wsha.org or 206-216-2533 if you would like a copywillc@wsha.org

40
Change in Case Mix Increase/decrease was affected by: –Increase in cost based weights (now 67% based on costs and 33% on charges) –Change to MS-DRGs WSHA is sending a breakdown showing changes related to each variable

43
Next Steps and Future Need advocacy on cuts for capital and behavioral offset WSHA will send additional information on impacts Final rule in August and new system in October Impact on service lines or specialty hospitals?